Boat Tax 2004

This article was first published and appeared on this website in July, 2004

Reviewing Maryland Boat Taxes

As the summer boating season heats up, boat owners should be aware of three important changes in Maryland's vessel excise tax laws. These are particularly important for boaters who have purchased a boat in another state and those who are considering purchasing or selling a boat in Maryland during 2004.

Maryland taxes five percent of the fair market value of any vessel sold in or brought to Maryland with the intention of making the state the base of the boat's principal use. It also taxes all boats that are principally used in Maryland, regardless of where or when they are purchased. If tax is not paid within 30 days of a sale or of the time that the vessel enters Maryland, there is an additional penalty of between 10 and 100 percent of the tax, and interest runs at 18 percent. For a $250,000 boat the tax will be $12,500; the minimum penalty, $1,250; and one year's interest would be an additional $2,250.

There are too many nuances concerning when tax is or is not due to discuss in this limited space, but the following list touches on a few of the most important exceptions for vessels arriving from out of state.

  1. The Listed for Sale Exception: Many boat owners are aware that tax may not be due on a boat that is brought to Maryland and listed for sale. However, the Boat Tax Enforcement Division of the Department of Natural Resources has taken a firm position on the requirements of that exception. Specifically, an owner must sign an affidavit in advance stating that the boat is listed for sale with a Maryland broker, and that the vessel will not be operated for pleasure while it is listed for sale. This requirement went on line in 2002, but there has been very lax compliance by boat sellers. If your vessel is listed for sale, don't wait until the Enforcement Division sends you an assessment because it will probably be too late. The office currently represents an owner that listed his vessel for sale under written contract in October 2002, just two weeks after the affidavit requirement took effect. The boat was never operated, and remained listed under written agreement until the fall of 2003, when the owner took it to Florida to sell. So far it appears that the assessment will stand, even though the boat met all of the requirements of the exception, except for the advanced filing of the DNR's form. Boat owners should get DNR form B121 from their brokers, and file it without delay.

  2. The Commissioning Exception: The Maryland General Assembly just passed revisions to the tax provisions that created an additional exception for boats that are being commissioned prior to use. These dovetail with the existing exception for vessels held for maintenance and repair. The legislature defined Commissioning Procedures to mean "the initial outfitting of a vessel immediately after the purchase of a vessel, including the installation of rigging, electronic gear, propulsion machinery, generators, or other related gear." Under normal circumstances, a boat is expected to pay tax or leave Maryland shortly after purchase. The new law officially means that time spent in commissioning does not create a tax liability.

    Boat tax is never simple, however, so vessel owners should know that I order to qualify, the boat must be held for commissioning for more than 30 days, the work must cost significantly more than storage charges, and the vessel cannot be operated during the commissioning except for a short sea trial to test the work. The new law takes effect July 1, 2004.

  3. The 90-Day Rule: In its original form, this exception took effect October 1, 2002. It was touted as giving out-of-state boaters 90 days in which they could visit Maryland without fear of owing vessel taxes. To the DNR's credit, it appears to have been largely enforced in that manner as well. The actual language did not cover everyone, though. The owner of the boat could not be a resident of Maryland; the boat could not have been purchased in Maryland; and the boat was required to have been used more in a single state other than Maryland. The new enactment deletes some of this excess language--most importantly it opens up the exception to any vessel in the state, regardless of who owns it and where it was purchased.

But, as always there are still some major concerns. First, since it too takes effect July 1, there is an open question of how to treat a boat that arrived in June. Second, it adds in language that may tax a boat intended to be mostly used in Maryland, even if the boat is not actually used most here.

A final word of caution: Maryland's Court of Appeals says that a taxpayer cannot rely on the statement of a DNR employee in making decisions about taxes. If you are told by a DNR police officer or desk clerk that you will not owe tax if you do X, and you do what they say ... that guarantees nothing. This office is currently litigating the question of whether a taxpayer can rely on the DNR's official publications and website--but so far it appears not.

This article is summary in nature and cannot be substituted for competent legal counsel. Whether a specific boat is or is not subject to tax requires detailed understanding of the facts.